To download the complete version of "The Story So Far: What We Know About the Business of Digital Journalism," a new report on digital news economics from the Columbia University Graduate School of Journalism, click here.

Those numbers put DailyCandy in a different league financially from the local news ventures profiled in this chapter. But the dynamic that makes DailyCandy work was visible years earlier, when the newsletter was a grass-roots venture with much smaller ambitions. Levy launched her business with $50,000 in savings and $250,000 raised from family and friends. The first edition went out to just 700 people, mostly friends or colleagues of Levy, then readership grew explosively. In 2001 the newsletter was already paying for itself, with tiny ads in each e-mailed edition as well as separate sponsored emails straight from advertisers.

By 2003 the subscriber list had grown to 285,000—more than 400 times its starting audience, a stunning ratio for so-called organic growth achieved with minimal outside support. It was on the basis of these numbers that Pittman made his initial investment in the business, reported to be “in the single-digit millions,” which in turn fueled the newsletter’s expansion into new markets and new editions.

In a broad sense, the experience of successful local and niche sites bears out the received wisdom that media ventures in today’s hypercompetitive landscape must “specialize or localize.” But only a fraction of online news outlets that pursue this strategy ultimately succeed. Defining and attracting a desirable audience is necessary, of course, but not by itself sufficient; acquiring that audience on a tight budget is what sets successful grass-roots ventures apart from the also-rans.

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Bill Grueskin, Ava Seave, and Lucas Graves are the co-authors of "The Story so Far: What We Know About the Business of Digital Journalism." Grueskin is dean of academic affairs at the Columbia University Graduate School of Journalism. Seave is a principal of Quantum Media, a NYC-based consulting firm. Graves is a PhD candidate in communications at Columbia University. For further biographical details, click here.